How to Start Investing in Your 20s

How to Start Investing in Your 20s

The internet is full of life hacks — tricks, skills, and shortcuts to better your life — but one of the most effective life hacks is often overlooked: investing.

It isn’t just for Wall Street millionaires. Investing in your 20s is a powerful way to shape your future. Unfortunately, just 41% of adults between the ages of 18 and 29 own stocks according to a Gallup poll, meaning a large percentage of young adults are missing out on the power of investing.

If investing seems daunting or intimidating, don’t worry. It’s easier than it sounds to get started, and you can begin with just a few dollars. By learning how to start investing, you can make your money work harder for you.

[Tip: Investing won’t make you rich overnight, and there is some risk involved. Don’t sacrifice your other financial goals to invest; continue paying down debt and building your emergency funds. Only invest money you don’t need in the short-term.]

Why Should You Start Investing Early?

When it comes to investing, time is your most valuable asset. The earlier you start investing, the more time you’ll have to benefit from compounding returns and build wealth.

For example, let’s say you start investing at the age of 25. You create a budget and decide to contribute $300 per month to your investment account. Assuming there’s an average annual return of 8%, you’d have $1.047 million by the time you reached the age of 65. You contributed just $144,000 of your own money; the remaining $900,000 — 86% of your total — is from market growth.

By contrast, let’s say you didn’t start investing until the age of 35. To reach $1.047 million by the age of 65, you’d have to contribute over $700 per month to reach your goal. And by the time you reached 65, you would contribute more than $100,000 more of your own money than if you had started earlier.

And if you wait to invest until you’re 45, you’ll have to take drastic steps to meet your savings goal. To have $1.047 million by the time you reach 65, you’ll have to contribute over $1,750 per month. Overall, you’ll invest over $425,000, nearly $300,000 more than if you had started when you were 25.

As you can see, investing in your 20s is a powerful way to set yourself up for success. Having to save just $300 per month is a lot more manageable than having to save $1,750 per month.

Starting Investment Age Account Total by Age 65 Monthly Contribution Total Contributions by Retirement Total Growth by Retirement
25 Years Old $1.047 Million $300 $144,000 $903,302 (86% of total)
35 Years Old $1.047 Million $703 $253,080 $794,642 (76% of total)
45 Years Old $1.047 Million $1,778 $426,720 $620,558 (59% of total)
*Examples assume an 8% average annual return

Investing Basics for People in their 20s

Before you can begin investing, you’ll need to learn some of the fundamentals behind it and the stock market. Building a basic understanding will help you make more informed decisions with your money.

What are the most common types of investments?

You have likely heard of stocks and bonds before, but you may be surprised to learn about the many different types of investments available. Below are some common ones listed from low to high risk:

  • Bonds: Bonds are usually a lower-risk investment option. They are debt securities issued by the government or a corporation, and they promise a fixed rate of return over a certain period of time.
  • Mutual Funds: With a mutual fund, you pool your money together with other investors to buy a portfolio of stocks, bonds, and other securities.
  • Exchange-traded funds (ETFs): ETFs invest in a basket of securities, such as stocks, at once. An ETF can contain hundreds of stocks, allowing you to invest in many companies with a single investment.
  • Index funds: Index funds are a valuable investment tool. They aim to replicate the performance of stock market indices like the S&P 500. They may invest in every stock within the index or a representative sample; in either case, you get exposure to a variety of companies at one time.
  • Stocks: Stocks are shares of publicly held companies. For example, you could buy shares of Apple, Tesla, or Disney. Individual stocks can have huge fluctuations in price, so you should assume a moderate-to-high level of risk investing in stocks.
  • Digital assets: Digital assets, such as cryptocurrencies and non-fungible tokens (NFTs) are riskier investment options. Their prices can be volatile, and there isn’t as much regulation or oversight of the platforms that facilitate trading, making them very risky investment endeavors.

What types of investment accounts are there?

There are several investment account options, but the most common for new investors are retirement accounts — including 401(k)s, 403(b)s and Individual Retirement Accounts (IRAs) — and taxable brokerage accounts.

  • 401(k) or 403(b): 401(k) and 403(b) accounts are employer-sponsored retirement plans. You can open an account if your employer offers a retirement plan and invest money through payroll deductions. They are tax-advantaged, meaning you can make contributions with pre-tax dollars, and your money can grow tax-deferred. If your employer offers matching contributions, be sure to take advantage of that benefit to maximize your savings. The downside? You can’t withdraw money from the account until you reach your retirement age without paying taxes and penalties.
  • Individual Retirement Account (IRA): If your employer doesn’t offer a retirement plan, or if you want to supplement your savings, another option is an IRA. There are several forms, including Traditional and Roth IRAs, but they both have tax benefits and allow you to invest in a variety of securities. As with 401(k) and 403(b) accounts, there is a penalty for withdrawing money before you reach your retirement age.
  • Taxable Brokerage Account: If you are investing for goals beside retirement, a taxable brokerage account can be a useful option. It lacks the tax benefits of 401(k)s or IRAs, but you don’t have to worry about penalties for withdrawing your money before retirement.

How to Start Investing in 5 Steps

Now that you know the importance of investing as soon as possible, you can focus on learning how to start investing after college. It’s easier than you may think; you can begin investing in just five steps:

1. Think About Your Money Goals

Before you pick investments, you should spend some time reflecting on your financial goals. What you want to achieve and your desired timeline will impact what accounts you utilize and your investment options.

All investing has an element of risk. How much risk you’re willing to take on is known as your risk tolerance. Your goals and risk tolerance will determine how you build your portfolio.

For example, let’s say you’re investing for your retirement. You will likely use a tax-advantaged investment account, such as a 401(k) or IRA, and invest in a mix of stocks.

If you have a goal with a shorter timeline — such as buying a home within the next five years — you have a lower risk tolerance. With a shorter timeframe, you won’t have the time to weather market ebbs and flows, so you can focus on more conservative investments, like bonds.

Generally, the younger you are, the higher your risk tolerance should be. That’s because you have more time to let your investments grow and recover from downturns in the market.

[Tip: For most investors, it’s wise to focus on long-term investing. Other investment approaches, such as day-trading, are incredibly risky, and even experienced investment professionals can lose substantial amounts of money with short-term trading.]

2. Create an Investment Budget

Next, think about how much money you can invest up front, and how much you can afford to invest on an ongoing basis.

When determining how much to invest, make sure you’re meeting your other financial obligations, including your bills and debt repayment. And because most investing will require a long-term commitment, only invest money you won’t need in the next few years.

Don’t be discouraged if you can’t afford to invest huge sums right away. There are many investment platforms that allow you to start investing with as little as $5. And some platforms offer round-up features; every time you make a purchase with a credit or debit card, the platform will round up your purchase amount to the nearest full dollar and deposit the extra change to your investment account.

Small, regular contributions can pay off over the long run. For example, let’s say you invest just $25 per month starting at the age of 25. Assuming an 8% average annual return, you’ll contribute a total of just $12,000 by the time you’re 65, but your account will be worth $87,275.

3. Open an Account

Once you know your goals and how much you can invest, you can open an account.

If your employer offers a retirement plan, like a 401(k), it can make the process of opening an account much simpler. But you can open an investment account on your own through investment companies and brokerages like Acorns, Betterment, or Fidelity.

Acorns Betterment Fidelity
Account Options IRA Brokerage Account IRA Brokerage Account IRA Brokerage Account
Minimum to Open Account $5 $10 No minimum
Types of Investments Exchange-Traded Funds Exchange-Traded Funds Bonds Crypto Exchange-Traded Funds Mutual Funds Stocks

4. Diversify Your Portfolio

Once you have an account, you can start investing, buying, and selling securities. It’s important to keep in mind that diversification is critical. Why? Stock prices can fluctuate a great deal. A stock’s price could drop significantly over a relatively short period; if you mostly invest in just one or two stocks, you could lose a substantial amount of money.

When you diversify your portfolio, you invest in many different stocks or other securities in different industries. You can do it on your own by buying individual stocks from multiple companies, but another way to diversify your portfolio is to invest in index funds, exchange-traded funds (ETFs) or mutual funds. These investment options allow you to invest in hundreds of companies at once, so the performance of the other stocks in the fund can offset the losses of a company that performs poorly.

5. Don’t Be Afraid to Ask for Help

When you’re new to investing, stock market changes can be scary. But there’s no need to handle it on your own. You can get professional advice from experts so you can get the peace of mind that comes from knowing you have a portfolio tailored to your needs. There are two main approaches:

  • Individual advisor: If you want one-on-one assistance where someone sits down with you and reviews your finances and goals, consider setting up a meeting with a certified financial planner (CFP). You can find a CFP by searching for one near you at
  • Robo-advisor: Another popular strategy is to use robo-advisors. These platforms use your risk tolerance and financial goals to design portfolios of ETFs. The robo-advisor manages your portfolio for you, buying and selling as needed, to help your money grow. Platforms like Acorns and Betterment are robo-advisors with low investment minimums, so you can get started with as little as $5 or $10.

Investing in Your Future

Investing is an essential part of building financial security and starting in your 20s can be one of the best ways to set yourself up for the future. By starting early, you can take advantage of time in the market and the power of compounding to grow your money.

Learning how to start investing can be intimidating, but there are many ways to begin with a small amount of cash. Whether you choose to open a retirement account with your employer or invest on your own through robo-advisors, you can start investing within just a few minutes.


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